Financial Management: Importance, Financial Statements, Ratios and Analysis

This article discusses the concept and importance of financial management, financial statements, ratios, and analysis. It covers topics such as corporate funding, capital structure, cash flow, income statement, balance sheet, and uses of ratios. The article also includes a case study and calculations to demonstrate the practical application of financial management. The subject is relevant to students of business, finance, and accounting, and professionals in the field.

Applied
Business
Finance

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
SECTION 1.....................................................................................................................................1
Defining and discussing on concept as well as importance of financial management................1
SECTION 2.....................................................................................................................................2
Describing financial statements and explaining utilization of ratios for financial management:2
SECTION 3.....................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9
APPENDIX....................................................................................................................................10

INTRODUCTION
Corporate funding pertains to finances and receivables utilised in a company. Accounting
might be described as the basis for an institution's economic activity (Foyeke, Olusola and
Aderemi, 2016). Capital structure is therefore focused with generating and managing money in a
company. The finance department is responsible for the coordination, monitoring and
supervision of activities. Investment choices influence both revenue and the risk element
connected with corporate activities. Company financing is thus provided to a firm for outside
financial support that is used in the event that an organisation is facing a capital shortfall.
This study relied on an applicable wealth management assessment. It describes and
addresses the necessity of cash decisions. Furthermore, the fundamental assertions and the use of
metrics for money planning are outlined and debated. Lastly, an interpretation of a net profit,
stability and performance is evaluated.
SECTION 1
Defining and discussing on concept as well as importance of financial management
Capital structure leads to organizational development, organisation, directing and
controlling in connection with trade financing undertakings. It entails applying the organisational
structures to the economic profits of the firm. It may be claimed, whilst taking account of the
history of business administration, since money planning encourages investment strategies by an
organisation. In addition, economic considerations include collecting funds and evaluating these
resources by evaluating the original line to them, interest amount and predicted returns.
The benefits of business administration is explained beneath-
 Meeting operational expenses: Funding for an institution's capital expenditures is
needed by the firm in capital expenditure format. These capital expenditures include
several sorts of repayments, interest charges, natural resources, inventory etc. In order to
ensure seamless progress of the business, sufficient money management and short-term
upkeep shall be required. Cash performance ensures that cash flow is properly maintained
in a company that encourages the performance of the business (Henager and Cude, 2016).
 Planning of financials: In developing and implementing improved capital forecasting in
an enterprise, economic administration performs a significant function. It assesses the
industry needs with regard to its finances. In addition, personal finance encourages the

identifying of sectors where corporate action is essential. Therefore, an institution's
longevity and critical factors.
 Protects funds of business: Managerial accounting ensures that organisation funding is
protected and maintained to assist achieve corporate goals. It supports a company in
measuring funding regions and guarantees that a capital structure good resources
allocated. It improves the company's productivity by minimizing excessive expenditure,
which has a major effect on an organization's functioning.
 Fund allocation: Furthermore, it is important to secure the efficient planning of funding
in the organisation using money management. A competent uses of money in successful
firm its operating skills to be improved. It reduces computational money and provides to
increase an entrepreneur's projected investment (Kwilinskyi, Shteingauz and Maslov,
2020).
 Enhances profitability: Financial performance depends heavily on proper use of funds
and also on organizational effectiveness. As, economic reporting assists a firm to increase
its status of competitiveness.
SECTION 2
Describing financial statements and explaining utilization of ratios for financial management:
Balance sheet:
2016
Total
£0
Non Current assets
Intangible assets 5,793
Tangible assets 52,812
Investments 10,693
69,298
Current assets
Stocks 28,571
Trade debtors 26,367
Short term deposits 14,779
Cash at bank and in
hand 14,632
84,349
Current liabilities
Bank loans and 9,610

overdrafts
Trade creditors 19,493
Other Creditors 678
Income tax payable 3,585
Other creditors
including tax and social
security
4,562
37,928
working capital 46,421
Total assets less
current liabilities 1,15,719
Non Current
Liabilities
Bank loans and
overdrafts 16,506
Other Liabilities 7,304
23,810
Provisions for
liabilities 8,094
Net assets 83,815
Capital and reserves
Called up share capital 39,436
Reserves 1322
Retained earnings 43,057
Total equity 83,802
Business Review:
2016 20
15 Change
£’000 £’000 %
Turnover (continuing operations) 1,89,711 1,79,58
7
5.60
%
Profit for the financial year 43057 18,987 126.7%
Shareholder’s equity 83802 63,057 32.90
%

Current assets as % of current liabilitie
s 222% 30
4%
-
82%
Customer satisfaction 4.5 4
.1
10
%
Average number of employees 649 61
8
5
%
Gross Profit = £81125
Net Profit = £43057
Net Profit increased in 2016by126.7 during the year.
Shareholders’ equity increased by 32.9% by £83802.
The company’s “quick ratio”(Current Assets(excluding stock)divided by Current
Liabilities)is 1.47:1
The company’s “current ratio”(Current Assets divided by Current Liabilities.)is 2.22:1.
Calculations:
Gross profit = sales – COGS = 189711 – 108586 = 81125
Net Profit = Revenue – total expenses = 81125 – 38068 = 43057
Profit = 43057 – 18987 = 24070
Current ratio = current assets / current liabilities = 54349 / 37928 = 2.22:1
Quick ratio = (current assets- stock) / current liabilities
= (84349- 28571) /37928 = 1.47:1
Equity = 63057 / 20745 = 83807
Increase in profit = 63057 / 32.9% = 20745
These assessments are indicated by accounting knowledge which would provide a complete
article on a company's financial performance. It includes property, shares, expenditures, debt,
and cash flow and so on. An indicator that allows an explanation of an institution's economic
activity throughout a specified term can be described as an accounting record. It includes an
introduction of the company' economic standing. It is a traditional narrative providing official
documents conveying business processes and evaluating a firm's financial position. For the

objective of this research of a firm's earnings, market and investment experts are super stable on
these accounting reporting (Levy, Bouheni and Ammi, 2018). Accounting records are used for
the analysis of economic condition and the future earnings of a firm by shareholders, financial
experts and debtors. The primary financial information provided by the company's monetary
management are net income, profit and loss account assertion.
Balance sheet- The accounting information, primarily informs on the resources, obligations and
the stockholders ownership of a corporation at an amount of time, and could be defined as the
financial statements. It is the foundation for calculating the default rate and assessing the
financial architecture of the company. It demonstrates the number committed by investors of a
company and reflects a picture for both own and owes of a company. The accountancy formula
that covers resources on one side and obligations and ownership on the other. It asserts that even
an institution's resources are equivalent to its obligations and investors' equities.
 Assets: In that same sector, certain things are also mentioned that make an excellent
addition for a company, i.e., certain things that could be money flexibility. It
comprises of 2 categories, financial assets and non-current resources. At present, the
commodities are the types of resources that may be eliminated within one annum,
whereas the non-current resources belong to certain investments that cannot be
eliminated within one year. The existing assets segment shall take into consideration
cash and cash equivalents, liquid assets, trade receivables, inventories and accrued
liabilities. In addition, non-current assets include long-term commitments, fixed
assets and inventory (Panos and Wilson, 2020).
 Liabilities: It pertains to funds owed to exterior entities by an organisation. This
covers the sum paid to vendors, interests paid to debtors, lenders and so on by a
company. Moreover, it is split into two parts: existing and non-curring obligations.
Present obligations are those that have to be paid within one year. Non-current
obligations, instead, include such obligations that have to be paid after one year.
Ongoing obligations include bank debt, accrued expenses, due in advance, receivable
profits and trade payables. In addition, non-current obligations comprise long-term
debt, company pension obligations and default tax payments.

 Shareholders’ equity: It includes revenue belonging to a corporation's stockholders.
It displays the sum equal to the company's entire assets minus the institution's entire
debts. Continued income is not included in it.
Income statement: It shows the profitability of the company over even a amount of time.
Therefore, the summary of revenue type of financial report that shows both an institution's
revenue and consumption. It makes it possible to assess a company's financial position. In
addition, the earnings statements guarantees that the proprietors of a company select how to
increase their profit capability and those business-related costs are reduced. Furthermore, the
revenue summary compute shows an operational productivity in the raise capital by the company
leadership team. Revenue reports educate an undertaking that works to create educated choices
on progress record. In addition, it exposes an institution's approaching or prospective spending as
well as unanticipated tax deductions. The compilation of a summary of financial position
moreover, permits a company's total examination.
Cash flow statement: This report indicates both cash and monetary alternatives that a
business earns or pays. In addition, the revenue stream summary helps a company to gauge its
performance levels with regard to its cash balance. It shows the company's capacity to generate
money for payment of several other commitments to its borrowers and to finance its overhead
cost. Operational money input working capital from funding operations and currencies flowing
from finance operations are part of the financial statement. Preparing the cash flow enables the
shareholders in a company to assess operational efficiencies. It is significant as it guarantees that
its shareholders determine the decision to put the money of the organisation (Sari and Fatimah,
2017).
Ratios: It is a methodology that can determine or obtain information into a firm’s
financial status, operating excellence and revenue degree. It is a central pillar for the examination
of basic property. It offers a glimpse into an institution's revenue, stability, management quality
and stability. In addition, the financial ratio indicates the effectiveness of a corporation's
operation over a specific timeframe and allows it to compare its success with some other
business venture. In general, the financial ratio gives a broader perspective of a company's
financial performance.
Uses of ratio are further described below:

 Forecasting as well as planning: The ratio calculation supports prediction and
scheduling operations. An efficiency ratio allows an organisation to estimate its
operations.
 Budgeting: The financial ratio allows estimating forthcoming or prospective professional
knowledge actions. It aims to determine the expenditure.
 Operational efficiency: It assessed the extent to which the administration and
exploitation of its resources are operationally efficient. Financial position of an
organisation that is dependent on income from use of its assets.
 Evaluation of position of liquidity: Proportion analyses allow an institution's financial
status to be evaluated in the near term in relation to its service organizations (Subires and
Bolivar, 2017).
SECTION 3
Net profit margin = 43057 / 189711 * 100
= 22.69%
Gross profit margin= 81125 / 189711 * 100
= 42.76%
Current ratio = Current assets / current liabilities
= 54349 / 37928
= 2.22:1
Quick ratio = (Current assets – inventory) / current liabilities
= (84349 – 28571) / 37928
= 1.47: 1
From the accounting ratios described previously, effectiveness in revenue generation
through their operational activities could be considered to be large as the institution's total
revenue percentage is great. On either side, the company has to increase its net income margins
via unneeded deduction. In addition, an agency's capital structure is sufficient (Villasanti and
Passino, 2016).
CONCLUSION
It may be deduced from the preceding study that money planning relates to a corporate
finance practise. It involves analyzing the company's successful implementation and assures
alignment with corporate standards. It is process of monitoring financial performance of a

organisation. It promotes establishment of economic aims of the organization for lengthy period,
permits implementation of wise choices, and provides understanding of accounting in reference
to finances and expenditures. In the event of investment administration, the financial reports are
examined. There are 3 forms of finance summary: balance sheet, cash flow statement and income
account. In addition, report will help to assess a company’s economic status.

REFERENCES
Books and Journals:
Foyeke, O.I., Olusola, F.S. and Aderemi, A.K., 2016. Financial structure and the profitability of
manufacturing companies in Nigeria.
Henager, R. and Cude, B.J., 2016. Financial Literacy and Long-and Short-Term Financial
Behavior in Different Age Groups. Journal of Financial Counseling and Planning,
27(1), pp.3-19.
Kwilinskyi, O., Shteingauz, D. and Maslov, V., 2020. Financial and credit instruments for
ensuring effective functioning of the residential real estate market.
Levy, A., Bouheni, F.B. and Ammi, C., 2018. Financial management: USGAAP and IFRS
Standards. John Wiley & Sons.
Panos, G.A. and Wilson, J.O., 2020. Financial literacy and responsible finance in the FinTech
era: capabilities and challenges.
Sari, R.C. and Fatimah, P.R., 2017. Bringing voluntary financial education in emerging
economy: Role of financial socialization during elementary years. The Asia-Pacific
Education Researcher, 26(3), pp.183-192.
Subires, M.D.L. and Bolivar, M.P.R., 2017. Financial Sustainability in Governments. A New
Concept and Measure for Meeting New Information Needs. In Financial Sustainability
in Public Administration (pp. 3-20). Palgrave Macmillan, Cham.
Villasanti, H.G. and Passino, K.M., 2016. Feedback controllers as financial advisors for low-
income individuals. IEEE Transactions on Control Systems Technology, 25(6),
pp.2194-2201.

APPENDIX
Income statement:
Turnover 3 1,89,71
1
Less cost of sales:
Material Cost 42,597
Production Cost 15,231
Labour Cost 50,758
1,08,58
6
Gross profit 81,125
GP %
= 42.8
Less Expenses:
Administrative expenses 13,751
Other operating overheads 22,374
Interest 1,943
Total Overheads 4 38068
Profit/(loss) for the financial
year 43057 NP%= 22.7